Russian Reserves Rise After Bank Buys Currency

By Emma O’Brien and Alex Nicholson

Feb. 19 (Bloomberg) -- Russia’s international reserves increased last week as the central bank purchased foreign currency in a bid to temper the ruble’s gains.

The world’s third-largest reserves stockpile added $3.1 billion to $386.6 billion, after falling $4.6 billion in the week to Feb. 6, Bank Rossii said in an e-mailed statement today.

The central bank will buy and sell foreign currency as a way of ensuring the ruble stays within a 39 to 41 trading range against its dollar-euro basket, First Deputy Chairman Alexei Ulyukayev said this week, according to Reuters. After sliding 35 percent against the dollar since August, the ruble strengthened 4.3 percent last week, its biggest weekly advance versus the U.S. currency since December 1998.

“Last week, we saw a dramatic correction of the ruble exchange rate, triggered by a squeeze of local liquidity that was provisioned by the central bank,” said Vladimir Osakovsky, a Moscow-based economist for UniCredit SpA, Italy’s largest bank. “As a result, we saw considerable profit-taking on the foreign exchange market and the central bank decided to stabilize the exchange rate” by buying about $4.3 billion dollars, he said.

Overall Rise

The overall rise in the reserves was less, because the dollar appreciated in the period, reducing the value of the portion of the reserves held in euros, he said.

Russia has allowed the ruble to depreciate “gradually” over the past six months as the global financial sends the country toward a recession because of tumbling demand for oil and natural gas. A weaker currency boosts the competitiveness of exports, while benefiting local producers by reducing costs and making imports more expensive.

The ruble’s managed devaluation has cost Russia 36 percent of its reserves since August as the central bank sold foreign currency to mitigate its decline. The stockpile has fallen 35 percent from a record high level of $598.1 billion in August.

Bank Rossii has been offering to buy banks’ and investors’ foreign currency at the 38.75 to 39 basket levels as a way of replenishing the reserves, according to Mikhail Galkin, head of fixed-income and credit research at Moscow’s MDM Bank.

The ruble rose 1 percent to 40.0716 against the basket by 12:47 p.m. in Moscow today. The basket, made up of about 55 percent dollars and the rest euros, is used to limit currency swings that disadvantage Russian exporters. The 30-stock Micex Index rose 3.28 percent to 648.52.

Ruble Buoyed

The ruble was buoyed last week by higher interest rates and a squeeze on bank refinancing. The central bank boosted the rate charged on overnight and seven-day loans issued in repurchase auctions by 1 percentage point for the second time this month, leaving the so-called repo rate at 12 percent. It also reduced the average amount lent in auctions to 176 billion rubles ($4.9 billion) last week, from as high as 663 billion rubles a day in January.

Russia’s reserves are made up of 44 percent euros, 45 percent dollars, 10 percent pounds and 1 percent yen, according to Sergey Ignatiev, Bank Rossii’s chairman.

To contact the reporters on this story: Emma O’Brien in Moscow at eobrien6@bloomberg.net; Alex Nicholson in Moscow at anicholson6@bloomberg.net.